Singapore Girl’s Charms Fade as Airline Battle Heats Up

By David Fickling -
Apr 27, 2012

Singapore Airlines Ltd. (SIA) is missing
the party in its own home. Tourist spending in the city jumped
by half since 2008, aided by two new casinos and a 23 percent
rise in passenger traffic through Changi Airport.

That growth hasn’t been reflected in the carrier’s
passenger numbers, which are down by 2.2 million in the period.
The 12 percent drop is the largest of the 12 biggest publicly
traded full-service airlines in the Asia Pacific, data compiled
by Bloomberg show. Persian Gulf rivals are vying for premium
passengers and low-cost operators are poaching budget travelers.

Singapore Air’s slide contrasts with Cathay Pacific Airways
Ltd. (293), whose passenger numbers have risen 11 percent since 2008
because its Hong Kong base and a tie-up with Air China Ltd. help
it sell tickets in the world’s most populous nation. Singapore
Air, overtaken by Air China in 2009 as the biggest airline by
market value, will probably report a sixth straight decline in
quarterly profit when it announces fiscal full-year earnings May
9, according to analyst estimates.

“The fact is that they’re hurting,” said Peter Harbison,
executive chairman of CAPA Center for Aviation, a Sydney-based
company that advises airlines in the Asia Pacific. “There’s
good cause for a fundamental review of Singapore’s strategy.”

Adversity is an unfamiliar experience for Singapore Air. In
an industry that has suffered almost 200 bankruptcies since 1979
in the U.S. alone, it can boast of having never made a full-year
loss since it first sold shares to the public in 1985. Like the
iconic, demurely smiling “Singapore Girl” stewardess who
adorns the carrier’s marketing material, its performance harks
back to an age when aviation was more glamorous -- and even
profitable.

Good Times, Bad Times

“The economic downturn slowed some of our growth plans but
we take a long-term approach,” said Nicholas Ionides, a
Singapore-based spokesman for the airline. “We invest in both
good and bad times.”

The carrier, controlled by Singapore state-investment
company Temasek Holdings Pte., may report a profit of S$108
million ($87 million) for the quarter ended March 31, based on
the average of 23 analyst estimates compiled by Bloomberg. The
quarterly prediction was derived by subtracting results for the
first nine months from full-year forecasts. That compares with
S$171 million a year earlier, as rising fuel costs and
competition eat away at profits.

Shrinking Margins

The analysts’ forecasts suggest a net margin this year of
3.25 percent. In the airline’s first decade as a public company
its average net margin was 16 percent, sliding to 12 percent in
the following 10 years and 5.8 percent in the past three years.

The price of jet fuel in Singapore has risen 38 percent
since April 26, 2010, to $132.75 a barrel. Fuel now accounts for
40 percent of Singapore Air’s costs, compared to an average of
27 percent since 2004.

The carrier, which also owns regional airline SilkAir,
closed little changed at S$10.65 in Singapore trading today. It
has tumbled 25 percent in the past year. Cathay Pacific has
dropped 33 percent in the period in Hong Kong, while AirAsia
Bhd., the region’s biggest discount carrier, has jumped 23
percent in Kuala Lumpur.

Singapore Air faces greater competition on Europe-Asia
routes as Emirates Airline and Qatar Airways Ltd. leverage more
convenient hubs and win premium passengers with improved service
standards. Regional and economy travelers are being targeted by
low-fare airlines such as AirAsia and Qantas Airways Ltd.’s
Jetstar.

“They’re being squeezed at both ends of the plane,” said
Andrew Orchard, an analyst with Royal Bank of Scotland Group Plc
in Hong Kong who rates the stock a sell. “They have less growth
now and a lot more competition.”

World’s Best Airline

Qatar was last year named the world’s best airline by
rating group Skytrax, an award that Singapore Air received in
three years out of five until 2008, and has not won since.
Singapore Air’s neighbors Thai Airways International Pcl and
Malaysian Airline System Bhd. will also both add Airbus SAS
A380s this year, rivaling the carrier’s flagship plane.

“Clearly the competition in some areas has got a lot
better,” Skytrax London-based spokesman Peter Miller said by e-
mail, citing Qatar and Seoul-based Asiana Airlines Inc. “We are
seeing a more level playing field in product standards as many
carriers seek to match Singapore.”

The change has been noted by Singapore Air’s regular flyers.

“They have this arrogant attitude that they’re the best so
people will continue to use them no matter what,” said Mark
Roberts, 48, a mining metallurgist from Melbourne who flies
business class to Asia and Europe about 15 times a year.

Thai Air, Emirates

Having flown exclusively with Singapore Air since 1998, in
recent years he has increasingly chosen Thai Air and Emirates.
“I felt like I was being taken for a fool” by changes in
Singapore Air’s loyalty program and the last-minute swapping of
older aircraft on premium-priced routes.

“It’s almost a lucky dip whether I get the product I paid
for,” he said.

The Boeing Co. 747s that occasionally flew the Melbourne-
Singapore route were retired from the fleet earlier this month,
Singapore Air’s Ionides said.

At Changi Airport, Emirates and Qatar alone now operate 74
flights a week. Low-cost carriers including Tiger Airways
Holdings Pte., part-owned by Singapore Air, have boosted their
share of passengers to 26 percent last year, from 5.6 percent in
2005, helped by the opening of a budget terminal.

Tourism Push

Singapore Air now accounts for about a third of Changi’s
passengers, from more than half in 2008. The decline reflects
the government’s move to boost tourism and limit dependence on
manufacturing. Visitor spending since 2008 has risen to S$22.2
billion, and the two casino resorts alone have increased sales
from $6.6 million to $2.5 billion.

“If more airlines fly into Changi that makes Singapore
more international,” said Khee Giap Tan, an economist who has
consulted on trade, tourism and economic policy for Singapore’s
government and is an associate professor with the Lee Kuan Yew
School of Public Policy at the National University of Singapore.
“We need more airlines.”

Singapore Air’s management is moving to increase their
presence in the low-cost market. The carrier already owns 33
percent of Tiger Air (TGR) and it’s setting up a long-haul operator
called Scoot. That new unit will start budget flights to Tianjin
in China, Bangkok, Sydney, and Australia’s Gold Coast this year.

That may be timely as the business travel market, long the
backbone of Singapore Air’s profitability, is trading down.
First and business class growth peaked in May 2010 and has been
lagging behind the overall market since October, according to
the International Air Transport Association.

Crisis Survivor

Rohit Deshpande, a professor of marketing at Harvard
Business School who has studied the airline, cautioned against
writing off a carrier that survived the 1997 Asian financial
crisis, the September 11, 2001 terrorist attacks and the 2002-03
SARS epidemic.

“I’m extremely bullish not only about their business model
but about how smart they are in difficult times,” he said.

On Singapore Air’s main routes the focus is on contraction,
rather than expansion. The carrier has cut flights since 2008 to
cope with the more competitive market, and is offering pilots
unpaid leave to seek work with other carriers.

Available seat kilometers -- the standard measure of
capacity in the airline industry -- have fallen by 5.1 percent
since 2008 to 108 billion kilometers. The number of seats
occupied by paying passengers has dropped even further, sinking
7.3 percent over the period.

“The world has changed for them,” says CAPA’s Harbison.
“The days of being able to rely on the Singapore Girl to pull
people in are gone.”